After a year spent clearing one regulatory hurdle after another, East Boston Neighborhood Health Center has completed its takeover of South End Community Health Center.
The coronavirus pandemic has changed much in the health care world since the deal was announced in June 2019, but not the rationale for the combination: to maintain the much-smaller South End center’s ability to deliver primary care, mental health care, and other services, mostly to poor and uninsured patients.
“It’s more important now,” Manny Lopes, chief executive officer of the East Boston center, said in an interview Tuesday. “We’re preserving an important resource for the South End.”
Bill Walczak, who was then running the South End center, pitched the merger to Lopes as a win-win. Walczak’s money-losing organization would get much-needed financial support, while Lopes’s would get more revenue and be able to spread its fixed costs over a larger patient base.
“We were losing money on every behavioral health visit,” Walczak said Tuesday, noting that the South End center has a large mental health department. “We would have had to reduce behavioral health services” and other services that weren’t making a profit, he said.
Running a community health center is tough. In Massachusetts, they operate mostly in inner cities, where there are large disparities in patient health, available services, and outcomes compared with the suburbs. Many patients are on Medicaid — the government program with notoriously low reimbursement levels — or have no health insurance at all. No-show rates are high, resulting in lost revenue. Without federal and state grants, many community health centers wouldn’t survive.
The East Boston center is the state’s largest, and among the biggest nationally, but it has been hammered along with the rest of the health care industry by the pandemic. At the peak of the crisis, when the center was forced to stop most in-patient visits, it was losing $1 million a week, as according to Lopes. He furloughed 10 percent of the work force, though most have now been brought back even though patient visits are still well below pre-pandemic levels.
An industry where most players are small and barely getting by is ripe for consolidation that can improve efficiency and reduce overhead costs. But takeovers like the one of the South End center have been rare.
“If you’ve seen one community health center, you’ve seen one community health center,” said James Hunt, CEO of the Massachusetts League of Community Health Centers.
In other words, there is a lot of variation among services provided, community needs, and funding sources.
Federal rules that had made outright takeovers difficult have been changed, and Hunt expects to see more now , as well as an increase in affiliations and other less-formal tie-ups.
“We are going to see a drive for more efficiency of scale,” he said.
The South End center will become a branch of East Boston Neighborhood Health. The combined organization will have about 1,300 employees, 110,000 patients, and an operating budget of $180 million.
Lopes said he hoped to keep expanding so the East Boston center can become more efficient and protect services.
“There is still an unmet need,” he said. “We need to make sure our doors are always open.”